When the COVID-19 pandemic hit the world in 2020, it brought the physical world to a standstill but set in motion a digital revolution. Since physical movements were almost impossible during the lockdowns, people turned to their smart devices, plugged into the internet, and embraced a completely digital lifestyle. Now that most lockdowns have been lifted and economic activities have resumed in most parts of the world, digital consumption remains strong — stronger even — and is now ingrained as a way of life.
In Southeast Asia, home to over 440 million internet users, an extraordinary shift towards the digital world paved the way for the growth of the internet economy. The region saw 40 million more people going online in 2021, bringing the internet penetration in Southeast Asia to 75%, new e-Conomy research from Google, Temasek Holdings Pte, and Bain & Co. shows. Among the region’s internet users, 8 out of 10 are digital consumers.
Propelled by e-commerce, transport and food, and financial services, the region’s internet economy is projected to double to $363 billion by 2025 from $170 billion gross merchandise value (GMV) this year. Continued shifts in consumer and merchant behavior, matched with strong investor confidence, have ushered the region into a ‘digital decade’, is on its way towards $1 trillion GMV by 2030.
The pandemic has been a catalyst for existing digital users to adopt new online services and increase their frequency of use and spending in these services, reads the report. Existing consumers are making purchases in four more digital services than they did before the pandemic.
While the pandemic accelerated digital consumption, the report explained that the trend is not a one-off phenomenon and is now a way of life for Southeast Asians. Even when in-store shopping is now permitted in major cities in the region, e-commerce GMV is expected to jump by 62% to about $120 billion this year, led by grocery, beauty, apparel, and electronic purchases from online marketplaces like Lazada and Shopee. The sector could potentially reach $234 billion in GMV by 2025.
Food delivery is also thriving, seeing the most substantial increase in adoption, and has quickly become the most penetrated service. More than 70% of all internet users in the region have ordered meals online at least once.
As digital consumption becomes an integral part of everyday life in Southeast Asia and consumers become increasingly dependent on digital services, the report says merchants need to meet rising expectations to thrive post-pandemic.
Besides giving consumers a wider selection of products, competitive pricing, and a better purchase experience, digital merchants are working on offering more convenient payment options. This year, 9 in 10 digital merchants started using e-payment systems. Other than increased sales and customers, 75% of digital merchants believe it is more convenient to process digital payments. In the next five years, 8 in 10 merchants anticipate over half of their sales to come from online sources; and just as many believe that they will procure most of their supplies online.
By 2025, digital payments are expected to reach over US$1.1 trillion in gross transaction value, beating the previous forecast of US$707 billion in 2021.
Where Vietnam’s internet economy stands
Vietnam has seen eight million new digital consumers since the start of the pandemic, with 55% of them rural consumers, proof of how the country’s digital landscape expanded beyond the metro. About 97% of these new consumers are still using digital services post-lockdown, with 99% intending to continue going forward.
Considering this high digital adoption, Vietnam’s 2021 GMV is expected to reach a total value of $21 billion, a 31% year-on-year surge, allowing both the government and economy to remain resilient. This increase is underpinned by a 53% growth in e-commerce. The transport and food sector is expected to increase by 35%, while online media usage (music, videos, gaming) will jump 30% in 2021.
Online travel, however, will pull Vietnam’s overall growth down. With the ongoing inbound and outbound travel restrictions, online travel spending will decrease 45% compared to 2021. If Vietnam prevents another outbreak, online travel may bounce back by 44% in the next four years.
Looking at 2025, the overall internet economy will likely reach $57 billion in value, growing at 29% CAGR.